Haier Appliances (India) (P) Ltd. v. DCIT

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The Tax Publishers2015 TaxPub(DT) 4511 (Del-Trib)div class=Section1> Haier Appliances (India) (P) Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --Transfer pricing --Computation of ALP Adjustment on account of advertisement and sale promotion expenses--Assessee was stated to be wholly-owned subsidiary company of H Ltd. engaged in the business of distribution of consumer durables such as air conditioners, refrigerator, washing machines, television sets, etc. It filed a loss return which was referred by AO to TPO who proposed certain adjustments in the arm's length price. Assessee was found to have assailed the additions made by way of resorting to bright line test holding AMP as an international transaction. The contention had been put forth praying for exclusion of expenditure consisting of advertisement and sale promotions amounting to Rs. 25.87 crores on the ground that it was for its own benefit as the expenditure incurred for the benefit of the AE was reimbursed to the extent of Rs. 19.01 crores. The remaining expenses amounting to Rs. 6.79 crores incurred was explained as an expense which was necessarily required to be incurred as a distributor of products in India on account of various expenses. It was also canvassed that rebate and discount did not form part of AMP expenses. Selection of comparables for benchmarking the AMP expenses were also assailed. It was contended that the advertisement expenses incurred by assessee did not result in creating any benefit/tangibles for the AE. Considering the submissions, CIT(A) upheld the action of TPO giving part relief to assessee holding that rebate and discounts amounting to Rs. 23.13 crores were to be excluded while benchmarking the AMP expenditure and he sustained the adjustment to the extent of Rs. 3.12 crores. *Held:* The matter was remanded back to TPO to decide issue afresh in terms of mandate of the Special Bench in L.G. Electronics Indian (P) Ltd. v. ACIT (2013) 83 DTR 1 (Del-Trib)(SB) , and in assessee's own case for assessment years 2004-05, 2006-07 and 2007-08. Income Tax Act, 1961, Section 92C *Followed:*L.G. Electronics Indian (P) Ltd. v. ACIT (2013) 83 DTR 1 (Del-Trib) (SB) *REFERRED :* FAVOUR : Matter remanded A.Y. : 2005-06 INCOME TAX ACT, 1961 --Transfer pricing --Computation of ALPProvision for warranty --Assessee's claim for treating the provision for warranty as ascertained liability was not accepted by AO. CIT(A) upheld the order of AO holding that it was in the nature of contingent liability. Assessee submitted that since the estimate of the provision for warranty was made on a rationale basis considering the past failure ratio in respect of sales of products, the same was deserved to be allowed. *Held:* The matter of treating the provision for warranty as contingent liability was remanded back to AO to pass speaking order in accordance with law after giving assessee a reasonable opportunity of being heard, following the legal precedent relied upon in Rotork Controls India Pvt. Ltd. v. CIT, Chennai (2009) 314 ITR 62 (SC). Income Tax Act, 1961 Section 92C *Followed:*Rotork Controls India Pvt. Ltd. v. CIT, Chennai (2009) 314 ITR 62 (SC) *REFERRED :* CIT v. Whirlpool of India Ltd. (ITA No. 1154 of 2009) FAVOUR : Matter remanded A.Y. : 2005-06 INCOME TAX ACT, 1961 --Transfer pricing --Computation of ALP Adjustment on account of advertising and publicity expenses --AO considering the claim of advertising and publicity expenses incurred amounting to Rs. 25.87 crores odd treated it as a deferred revenue expenditure and allowed 1/5 of the same, thereby resulting in the addition of Rs. 20.69 crores odd. CIT(A) considering the fact that assessee had received subsidy of Rs. 19.01 crores odd excluded the same and held 10 per cent of the remaining was to be disallowed as capital expenditure as he was of the view that the expenditure gave an enduring benefit. *Held:* In view of the orders of Tribunal in assessee's own case for assessment years 2004-05, 2006-07 and 2007-08, the advertisement and publicity expenses were allowed as revenue expenditure. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 4511 (Del-Trib)div class=Section1>

Haier Appliances (India) (P) Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Transfer pricing --Computation of ALP Adjustment on account of advertisement and sale promotion expenses--Assessee was stated to be wholly-owned subsidiary company of H Ltd. engaged in the business of distribution of consumer durables such as air conditioners, refrigerator, washing machines, television sets, etc. It filed a loss return which was referred by AO to TPO who proposed certain adjustments in the arm's length price. Assessee was found to have assailed the additions made by way of resorting to bright line test holding AMP as an international transaction. The contention had been put forth praying for exclusion of expenditure consisting of advertisement and sale promotions amounting to Rs. 25.87 crores on the ground that it was for its own benefit as the expenditure incurred for the benefit of the AE was reimbursed to the extent of Rs. 19.01 crores. The remaining expenses amounting to Rs. 6.79 crores incurred was explained as an expense which was necessarily required to be incurred as a distributor of products in India on account of various expenses. It was also canvassed that rebate and discount did not form part of AMP expenses. Selection of comparables for benchmarking the AMP expenses were also assailed. It was contended that the advertisement expenses incurred by assessee did not result in creating any benefit/tangibles for the AE. Considering the submissions, CIT(A) upheld the action of TPO giving part relief to assessee holding that rebate and discounts amounting to Rs. 23.13 crores were to be excluded while benchmarking the AMP expenditure and he sustained the adjustment to the extent of Rs. 3.12 crores. Held: The matter was remanded back to TPO to decide issue afresh in terms of mandate of the Special Bench in L.G. Electronics Indian (P) Ltd. v. ACIT (2013) 83 DTR 1 (Del-Trib)(SB) , and in assessee's own case for assessment years 2004-05, 2006-07 and 2007-08.

Income Tax Act, 1961, Section 92C

Followed:L.G. Electronics Indian (P) Ltd. v. ACIT (2013) 83 DTR 1 (Del-Trib) (SB)

REFERRED :

FAVOUR : Matter remanded

A.Y. : 2005-06

INCOME TAX ACT, 1961

--Transfer pricing --Computation of ALPProvision for warranty --Assessee's claim for treating the provision for warranty as ascertained liability was not accepted by AO. CIT(A) upheld the order of AO holding that it was in the nature of contingent liability. Assessee submitted that since the estimate of the provision for warranty was made on a rationale basis considering the past failure ratio in respect of sales of products, the same was deserved to be allowed. Held: The matter of treating the provision for warranty as contingent liability was remanded back to AO to pass speaking order in accordance with law after giving assessee a reasonable opportunity of being heard, following the legal precedent relied upon in Rotork Controls India Pvt. Ltd. v. CIT, Chennai (2009) 314 ITR 62 (SC).

Income Tax Act, 1961 Section 92C

Followed:Rotork Controls India Pvt. Ltd. v. CIT, Chennai (2009) 314 ITR 62 (SC)

REFERRED : CIT v. Whirlpool of India Ltd. (ITA No. 1154 of 2009)

FAVOUR : Matter remanded

A.Y. : 2005-06

INCOME TAX ACT, 1961

--Transfer pricing --Computation of ALP Adjustment on account of advertising and publicity expenses --AO considering the claim of advertising and publicity expenses incurred amounting to Rs. 25.87 crores odd treated it as a deferred revenue expenditure and allowed 1/5 of the same, thereby resulting in the addition of Rs. 20.69 crores odd. CIT(A) considering the fact that assessee had received subsidy of Rs. 19.01 crores odd excluded the same and held 10 per cent of the remaining was to be disallowed as capital expenditure as he was of the view that the expenditure gave an enduring benefit. Held: In view of the orders of Tribunal in assessee's own case for assessment years 2004-05, 2006-07 and 2007-08, the advertisement and publicity expenses were allowed as revenue expenditure.